The Beat Goes on For Class 8 Truck Orders – Jeff Berman

Post from: Logistics Management – Jeff Berman

As has been the case for a while now, Class 8 truck orders are still very much in demand.

For sure, one reason for the strength in orders is a humming economy, as well as tight capacity brought on by the ongoing driver shortage, and solid demand levels, too.

The strong levels of Class 8 orders in July and for the whole year, really, are apparent based on data recently issued by companies tracking commercial truck buys and orders.

In its data, FTR reported that preliminary data for North American Class 8 orders in July, at 52,250 units, represents a new all-time high, topping the 52,194 orders made in March 2006. This represents a 25% sequential gain over June and a 187% annual improvement. Very strong numbers to say the least.

But these numbers get stronger. In 2018, FTR explained that five of the highest 12 order months ever occurred between January 2018 and July 2018, with North American Class 8 orders for the 12-month period ending July 2018 at 445,000 units.

As for what is behind these booming numbers, FTR stated that: “Fleets are desperate to get new trucks, but supply is limited. Because fleets are frustrated by the current situation and are uncertain when they can receive trucks, they are placing a large volume of orders in hopes of getting some deliveries at some point in the future. In essence, there is a truck shortage. Freight growth is robust and industry capacity is extremely tight. OEM’s have been hindered because numerous parts and component suppliers have not been able to produce and deliver on time.”

That is it, in a nutshell, really, with FTR vice president of commercial vehicles Don Ake observing that this is a unique situation where strong demand is meeting limited supply.

“Prices can’t rise enough to alleviate the situation,” he said in a statement. “Therefore, the market is responding by placing an immense number of orders into the backlog.  Fleets are reserving places in line, so they can get the maximum number of trucks in the future.  It is a bizarre occurrence and it will not be resolved soon.  Conditions may be abnormal, but they are abnormally good.”

Commentary from ACT Research was equally positive, with the firm reporting that its preliminary North America Class 8 net order data indicating that the industry ordered 52,400 units in July, which it said was an all-time record, even though July is usually the weakest order intake month of the year.

“Preliminary NA Class 8 net orders rose 24% month-over-month to set a new all-time record of 52,400 units in July. The previous record was set in March 2006 (52,194). July’s activity was nearly triple (180%) that of July 2017,” said Steve Tam, ACT vice President, in a statement. “The feat is made even more spectacular since July is typically the weakest order intake month of the year. Besides capturing the distinction of the best month in the current rally nominally, on a seasonally adjusted basis orders are also the best on record, outpacing the March 2006 order intake by 13,500 units, or 165,000 on a SAAR basis.”

These all-time high order numbers got me thinking about a story we filed a little while back with the title “Truck orders are up but it may not all be for capacity expansion.”

That story included some commentary from FTR’s Ake, in which he described the heightened state of orders as part of the tightest capacity crunch ever, with industry veterans saying this is the best freight market they have ever seen and that fleets cannot add capacity fast enough and as long as the economy and manufacturing are going great, this capacity crisis will continue.

Fast-forward not much after than that and it really appears not a whole lot has changed, at least nothing materially.

What’s more, it raises the ongoing question of an apparent disconnect centering around the notion that while truck levels are at these very high levels, some industry stakeholders maintain they are for replacing existing capacity instead of adding new capacity.

Mike Regan, chief relationship officer for TranzAct Technologies, indicated that the majority of these new truck orders are for replacement and to address the issues of an aging fleet.

“If I take a look at the overall ages of the fleet, the economics are such that a truck is a certain number of years old, the costs of maintaining that truck for the public fleets, makes it more economical for them to buy a new one as opposed to keep investing in existing one,” he said.

That is a very good point and is one that can be hard to dispute, given the myriad challenges carriers continue to face in terms of retaining and recruiting drivers these days.

But there may be more to it than just that, according to a research note issued by Stifel analyst Mike Baudendistel.

The analyst explained that the gains in orders could be a result of OEMs opening up their 2019 order books early and a rush to get orders in sooner to get in line amid long backlogs.

Baudenistel added that his Stifel colleague, Dave Ross, recently said that the uptick in Class 8 tractor orders are the “result of carriers expanding their fleets in response to recent wins for dedicated contracts, a service that has received greater demand as shippers seek guaranteed capacity solutions.”

So, are these increases in orders for capacity replacement or capacity expansion? It really could be a combination of the two, and that would not come as a huge surprise. Either way, the order numbers keep going in one direction: up. What happens next from here is unknown but it would hardly come as a surprise to see the numbers continue to head up in the short-term.

You May Also Like